When Jeju Air’s position as South Korea’s largest low-cost carrier appeared to be threatened by the merger of the country’s two largest airlines last year, the company’s chief executive assured employees that it would “proactively respond,” possibly by acquiring smaller opponents.
Now, a week after the Dec. 29 crash that killed 179 people, Jeju Air’s future is clouded by even deeper questions.
South Korean officials on Thursday raided the company’s offices and imposed a travel ban on Kim Ee-bae, the chief executive, as part of an investigation into the country’s worst air disaster in nearly three decades. Passengers are canceling bookings, adding further pressure to a debt-laden balance sheet. And Jeju Air’s share price, already trading near record lows, has fallen 10 percent since the disaster.
Earlier in the week, Mr. Kim said Jeju Air will cut 15 percent of its flights until March to “enhance operational stability.”
As investigators look into what caused Jeju Air Flight 7C2216 to crash, the airline is under intense government and public scrutiny over how it operates. Some of its operational practices have been questioned, including how it flew its planes more often than its competitors and how it outsourced its maintenance.
At a press conference at Muan International Airport on the day of the crash, Mr. Kim said maintenance checks found no problems with the plane, which he said had no history of accidents. In a public statement, Jeju Air said it was “committed” to helping anyone affected by the crash and was “fully cooperating” with investigations into its cause. He did not immediately return a phone call seeking comment.
Jeju Air’s business prospects were already uncertain. Over the past two years, like other airlines, the company has faced increased costs due to inflation and higher interest rates. Jeju Air’s flight capacity had not fully recovered to 2019 levels, according to OAG, a global provider of air travel data. The carrier operated 4 percent fewer flights in 2024 than before the Covid pandemic in 2019.
The crash occurred after Korean Air completed its takeover of a majority stake in Asiana Airlines last month. The merger — a $1.05 billion deal agreed four years ago — will eventually create a single national carrier. As part of this deal, three low-cost carriers operated by the two companies will come under one brand that will overtake Jeju Air as South Korea’s largest low-cost offering.
Two decades ago, Jeju Air became the country’s first emerging budget airline aiming to challenge the duopoly of Korean Air and Asiana. Jeju Air would operate the busy tourist route between Seoul and Jeju, a picturesque island off South Korea’s southern coast. The airline is majority owned by AK Holdings, a conglomerate known for selling laundry detergent and toothpaste. Jeju Air’s second largest shareholder is the Jeju Provincial Government.
Jeju Air emerged from a patchwork of other small airlines to become the country’s leading low-cost carrier. It has added routes across Asia, including stops outside traditional travel hubs, to cater to increasingly affluent South Koreans looking for overseas holidays. As measured by the number of available seats, it has added capacity by an average of 20 percent annually over the past 12 years, the OAG said.
Like many low-cost airlines, Jeju Air has kept costs tight, rolled out new technology and squeezed travelers for even small perks. It focused on short regional flights served by the same airplane model, the single-aisle Boeing 737-800.
“It is a reliable low-cost carrier with a good reach in Southeast Asia and North Asia,” said Mayur Patel, OAG’s regional sales manager.
After an initial public offering in 2015, Jeju Air was on fairly solid financial footing until the pandemic hit. As of 2020, it has had to raise funds on three separate occasions, totaling nearly $500 million. It also received a $29 million government loan on the condition that it retain 90 percent of its workforce.
Even after travel restrictions were lifted and Jeju Air was buoyed by pent-up demand, its debt problems remained because its costs were rising as fast as its revenues.
In corporate filings, Jeju Air said it must repay about $165 million in short-term loans by the end of next September. That already exceeded the cash and cash equivalent balance of nearly $150 million. And that was before the course of cancellations expected to shrink its cash balance further.
But analysts said liquidity concerns are common for low-cost airlines.
“Most of these airlines, if you look at their financial position, you’d think a lot of them are financially vulnerable, but airlines have a way of surviving these things more than other companies,” said Brendan Sobie, an independent aviation consultant and analyst. . He explained that companies in airline supply chains have a strong incentive to help struggling airlines.
On Thursday, a Jeju Air executive dismissed liquidity concerns, saying the company was moving ahead with expansion plans, including a deal to buy up to 40 new planes from Boeing in the coming years.
The carrier wants to modernize its fleet to take advantage of a South Korean government plan to support low-cost airlines as a counter to the monopoly threat posed by a merger between Korean Air and Asiana. The government said it plans to prioritize budget airlines for awarding new international routes from South Korea to Europe and Asia.
But now, some of the operating practices that helped Jeju Air keep its costs down are under the microscope.
Jeju Air flew its fleet of Boeing 737-800 planes more frequently than its competitors. In the first 11 months of 2024, Jeju Air flew its planes an average of 14.1 hours a day, according to South Korea’s Ministry of Land, Infrastructure and Transport. That compared with 8.6 hours for Korean Air and 11.4 hours for low-cost carrier Jin Air, according to the ministry.
Under normal circumstances, the difference in aircraft utilization will be maintained as an indication of Jeju Air’s efficiency, an important parameter for low-cost carriers operating on tight margins. But through the lens of a fatal crash, the discrepancy raised concerns.
Analysts who watch the airline industry said the planes flying more frequently would have no impact on a carrier’s safety as long as regulators kept a tight watch on how many hours its pilots fly and the maintenance standards of its fleet.
At a media briefing on Tuesday, Jeju Air was inundated with questions about maintenance, including its practice of outsourcing maintenance. Unlike Korean Air or Asiana, which have larger facilities and staff to handle more of their own maintenance work, Jeju Air and the country’s other low-cost independents rely primarily on dispatching work outside the country.
This practice has also helped Jeju Air keep maintenance costs low even as its other major costs have increased.
In 2023, Jeju Air’s revenue more than doubled from the previous year. It spent twice as much on fuel and airport costs to keep up with the increase in traffic, but maintenance costs, a more fixed cost, did not rise at a similar rate.
Jonathan Berger, Managing Director at Alton Aviation Consultancy, said outsourcing maintenance work is common in the industry. Maintenance work is highly regulated and controlled regardless of whether it is outsourced or where it takes place, he said.
“Jeju Air is not unique,” said Mr. Berger. “All airlines outsource a significant amount of maintenance.”
For now, Jeju Air said it will focus on restoring its reputation and supporting the victims and their families. The company said the plane involved in the crash was covered by an insurance policy of up to $1 billion that will ensure families get the help they need.
Jin Yu Young contributed to the report.
